Do you need to pay for a debt management plan?

Many debt management plan (DMP) providers charge a fee for their services but some don't. It's important to remember that if you don't want to pay a fee, you don't have to. You just need to choose a free provider.

This page explains how you can find a free DMP provider and what to think about if you do want to choose one that charges a fee.

Why do some DMP providers charge a fee?

A DMP provider works on your behalf to work out what you can afford to pay, negotiate payments with creditors, and distribute the payments to your creditors each month. Clearly, any organisation or company providing a professional service like this will have costs it needs to cover.

Commercial DMP providers cover these costs by charging fees to their customers. Meanwhile, the free providers, who are normally charities, are paid directly by the banks and credit card companies themselves, meaning they don't need to pass fees on to their customers.

Do you get better service if you pay a fee?

Many fee-charging DMP providers will argue that you'll get a better service by paying a fee. They may also say that because they're being paid by you, rather than by the creditors themselves, they're working in your interests rather than those of your creditors. It's up to you to judge for yourself what you think about these arguments. However, there is no need for you to pay a fee if you don't want to.

Finding a free DMP provider

There are three main providers of free DMPs:

National Debtline

National Debtline is a national telephone helpline which gives free advice to people with debt problems. It will give you advice and send you a self-help pack. If it's appropriate, the adviser can refer you to a free DMP.

StepChange

StepChange is a charitable organisation funded by the credit industry to provide free credit counselling to people in the UK. It offers an initial interview by telephone or in person and then reviews your debt history and provides a recommendation. This can include a debt management plan, which is administered by StepChange.

Payplan

Payplan is a company which provides a free debt management service to people in the UK. It is independent and is funded by the credit industry. It will assess your financial position, suggest a repayment plan and approach the creditors with it.

If you decide to choose a fee-charging provider

If you decide to set up your DMP with a provider who charges a fee, there are a few things to watch out for:

your DMP is likely to last longer than if you didn’t pay a fee, as there will be less money from each of your monthly payments going to your creditors

the fees may include a set-up fee, deposit or an ongoing fee that is deducted from your monthly payments, so make sure you're happy with the costs before you sign

however, no more than 50% of the money you pay to a DMP provider should be taken to pay the provider's fees - at least 50% should be passed on to your creditors, and this should increase after the first six months

the costs of administering your DMP should be spread evenly over the DMP

if you cancel your DMP, you might not get a refund of any fees or charges, or you might have to pay a cancellation fee, so check the agreement carefully.

Make sure you do your research carefully and choose the provider who offers the best service for your needs.